Johnson and Johnson Settles Suit Alleging Management Incompetence and Deception, Managers Continue to Prosper

Very quietly, pharmaceutical/ biotechnology/ medical device corporate giant Johnson & Johnson just settled another lawsuit. The most pithy version is by Ed Silverman on Pharmalot, although Reuters and Bloomberg published short accounts.

The New Settlement

Per Mr Silverman, the gist is:

The health care giant agreed to resolve the dispute brought over allegations that J&J management shirked their responsibilities and allowed a chain of events that resulted in congressional probes; lost market share, consumer confidence and revenue, and a consent decree with the FDA. In the lawsuit, a shareholder charged that J&J bungled the integration of the Pfizer consumer health acquisition, placed inexperienced execs in charges of its OTC unit and cut costs so drastically that quality control suffered.

The lawsuit, which was brought by Ronald Monk, alleged that the health care giant made misleading statements about its products before disclosing problems with the Fort Washington plant and another in Puerto Rico. He also maintained that J&J withheld material information before its decision three years ago to shut down the Fort Washington plant, where contamination led to the unpublicized recall of defective Motrin tablets in 2009.

In agreeing to the settlement, J&J refused to admit any wrongdoing

So let me review. The allegations in this case were all about problems with the management of Johnson and Johnson.  They included allegations that management was incompetent and deceptive.  The incompetence was in handling the core functions of the company, assuring that its drug products were pure and unadulterated.  The deception was of patients, the public, and the nominal owners of the company to whom management is supposed to report, and allegedly included an attempt to cover up concerns about the purity of its drug products.

The proposed settlement follows the current practice of allowing the defendant not to admit the allegations, leaving their truth unproven.  However, one wonders, given that the allegations are about the core responsibilities of management and were leveled by the company owners, why the management would not defend their honor more forthrightly.

The Company's Sorry Legal Record

Furthermore, this settlement also follows the current practice of being made without reference to any other seemingly relevant legal proceedings.  In fact, it is just the latest of a long string of settlements and other resolutions of legal actions, including guilty pleas, by Johnson and Johnson management.  As we summarized most recently here, these included:

- Convictions in two different states in 2010 for misleading marketing of Risperdal
- A guilty plea for misbranding Topamax in 2010
- Guilty pleas to bribery in Europe in 2011 by Johnson and Johnson's DePuy subsidiary
- A guilty plea for marketing Risperdal for unapproved uses in 2011 (see this link for all of the above)

- A guilty plea to misbranding Natrecor by J+J subsidiary Scios (see post here)
- In 2012, testimony in a trial of allegations of unethical marketing of the drug Risperdal (risperidone) by the Janssen subsidiary revealed a systemic, deceptive stealth marketing campaign that fostered suppression of research whose results were unfavorable to the company, ghostwriting, the use of key opinion leaders as marketers in the guise of academics and professionals, and intimidation of whistleblowers. After these revelations, the company abruptly settled the case (see post here).
-  Also in 2012,  Johnson & Johnson was fined $1.1 billion by a judge in Arkansas for deceiving patients and physicians again about Risperdal (look here).
-  Also in 2012, Johnson & Johnson announced it would pay $181 million to resolve claims of deceptive advertising again about Risperdal (see this post).

Even though the record includes a number of settlement in which management did not have to admit guilt, the company has made a surprising number of guilty pleas in just the last few years.  Despite all this evidence of poor, that is incompetent or unethical management, Johnson and Johnson managers have been getting very rich.

As we mentioned here, Mr William Weldon, the outgoing CEO on whose watch most of the misbehavior resulting in the legal actions above occurred, retired with a huge retirement package, after receiving extremely generous compensation prior to that.  The new CEO as of April, 2012,  Mr  Alex Gorsky, per the company's 2013 proxy statement, already owns more than 190,000 Johnson and Johnson shares,  and received $10,977,109  total compensation in 2012.  Mr Weldon received over $29 million in total compensation just for 2012, the year in which he retired.  Other top executives received from over $3.5 million to over $8 million. 

Summary

So why do the stockholders, the owners of Johnson and Johnson continue to pay so much to an executive team on whose watch so many bad things have happened?  Why did law enforcement authorities allow the company to continue to plead guilty or settle cases without imposing any negative consequences on these executives?  Maybe only the Shadow knows. Of course, the lack of any discussion beyond that on Health Care Renewal, that puts each new settlement or guilty plea in the context of the ones before, and juxtaposes them to the rewards of given to management, may not help. 

As we said the last time we addressed the contrast between Johnson and Johnson's sorry legal record and its voluminous payments to executives, we have noted again and again and again that many of largest and once proud health care organizations now have recent records of repeated, egregious ethical lapses. Not only have their leaders have nearly all avoided penalties, but they have become extremely rich while their companies have so misbehaved.

These leaders seem to have become like nobility, able to extract money from lesser folk, while remaining entirely unaccountable for bad results of their reigns. We can see from this case that health care organizations' leadership's nobility overlaps with the supposed "royalty" of the leaders of big financial firms, none of whom have gone to jail after the global financial collapse, great recession, and ongoing international financial disaster (look here). The current fashion of punishing behavior within health care organization with fines and agreements to behave better in the future appears to be more law enforcement theatre than serious deterrent.  As Massachusetts Governor Deval Patrick exhorted his fellow Democrats, I exhort state, federal (and international, for that  matter) law enforcement to "grow a backbone" and go after the people who were responsible for and most profited from the ongoing ethical debacle in health care.

As we have said before, true health care reform would make leaders of health care organization accountable for their organizations' bad behavior.